The property involved in the transaction satisfied the attributes required for it to be considered as 'goods' and 'merchandise', and therefore, the assessee was entitled to deduction under Section 80HHC of the Income Tax Act.

(P.D. Dinakaran, J.)

This appeal is directed against the order of the Income Tax Appellate Tribunal dated 8. 2006 made in ITA.No.125/Mds/2002 for the assessment year 1998-99, raising the following substantial question of law:

"Whether in the facts and circumstances of the case, the Tribunal was right in treating the right to telecast the programme in foreign countries, as a sale of goods or merchandise eligible for the purpose of deduction under Section 80HHC?

1. Only a woodcut reference to the facts of the case is suffice. The assessee company is engaged in the business of telecasting Tamil Programmes through satellite. The assessee company entered into agreements with four parties, viz., (i) MTV Channel P. Ltd., Colombo, (ii) Radio Asia, South Africa, (iii) Singapore Cable Vision, Singapore; and

(iv) Singapore Television Twelve P. Ltd., Singapore giving them rights to telecast programmes produced by the appellant, and for having given the rights to the above parties, the appellant received an amount of Rs.50,86,342/- as remuneration. The appellant claimed the said amount as deduction under Section 80HHC of the Income Tax Act (for brevity, "the Act"). However, the Assessing Officer, rejected the same on the ground that there was no sale of any goods or merchandise in this case and only assignment of right has taken place.

2. The appeal preferred by the assessee against the said order of the Assessing Officer was allowed by the Commissioner of Income Tax (Appeals), observing that the assessee has assigned rights to telecast the programmes in foreign countries either by sale of video cassettes or with the help of satellite and in any case, after entering into agreement with the foreign parties, the appellant forfeits its right to telecast these programmes in those countries, and therefore, the transaction can effectively be termed as sale of goods or merchandise.

2. 3. On appeal, at the instance of the Revenue, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and decided the issue in favour of the assessee. Hence, the present appeal raising the question of law referred to above.

3. The main thrust of the argument of Mr.J.Narayanaswamy, learned Junior Standing Counsel for the appellant is that deduction under Section 80HHC of the Act is applicable only for profits derived from export of goods and merchandise, and thus cannot apply to the transaction of the assessee who has not exported any goods or merchandise, but only given to the foreign parties the rights to telecast the programme.

4. Mr.P.S.Raman, learned Senior Counsel for the assessee in his replication asserted that the order of the Tribunal warrants no interference, as the same was passed after carefully wading through the records and reiterated the application of the ratio laid down in the decision of the Division Bench of the Bombay High Court in Abdulgafar A.Nadiadwala v. Assistant Commissioner of Income Tax and Others, [2004] 267 ITR 488, in all fours to the facts of the case on hand.

5. We have given careful consideration to the submissions made on behalf of both sides.

6. For considering the issue raised in this appeal, the primal point that has to be determined is whether the product involved in this case can be said to be "goods” and/or "merchandise", as defined under Section 80HHC of the Act.

7. At this juncture, a reference to Section 80HHC of the Act is essential:

"Section. 80 HHC. Deduction in respect of profits retained for export business.--(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise:

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(2)(a) This section applies to